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Working paper

The Influence of Ownership Structure And Board Independence On The Cost Of Debt In BRIC Countries

Stepanova A. N., Kopyrina O.
This paper presents an empirical analysis of the influence of ownership structure and board independence on bond yield spread in BRIC countries, 2007-2016. The main finding of the study is the presence of significant country-specific effects of ownership structure on the cost of debt, and the absence of effects of board independence. According to our results, in Brazil, insider ownership and concentrated ownership of corporations increase the cost of debt, while institutional investors help to mitigate the risks of debt holders. Only state and insider ownership matter in Russia: the larger the government stake, the higher the cost of debt, while insider ownership has a non-linear effect. In India, insider ownership has an increasing effect, while state ownership has the inverse effect. Evidence from China reveals the decreasing influence of corporations’ ownership concentration, which can be a result of the co-insurance effect. We contribute to the literature by providing evidence from emerging markets, taking into account the specific features of each country and investigating the effect on the market indicator of the cost of debt, the data on which is scarce. The results of this study can be used by rating agencies or investors for the evaluation of the risks related to bond issuers, as well as by debt issuers for attracting finance with lower costs.